Martin Wolf

The question of the US reaction to China’s exchange rate policy continues to rumble in Davos, though the absence of the US policymakers makes the debate somewhat one-sided.

The response by Chen Siwei (former Vice Chairman of the People’s Congress and now Chairman of the Global Council for the Future of China), to the remarks of US Treasury Secretary, Tim Geithner, about China’s manipulation of the RMB exchange rate, can be translated as follows:

‘I don’t quite understand why he had said these unwise words, may be just to get the approval from the Senate. What I know is that he is a smart guy. I just hope he will just talk the talk and walk the walk when he is officially in office”.

The remark by Tim Geithner, president Obama’s new treasury secretary, that president Obama believes China is manipulating its exchange rate has, it can safely be said, not gone down well in Beijing.

On the contrary, it is condemned as presumptuous blame-shifting by the originator of the catastrophe. This is clear from several discussions I have heard in Davos. But I did not need to go to Switzerland to learn that.

There is little question that China is sensitive about public criticism of any kind. Nevertheless, this is not a question to be avoided. It is far too important for that.

My good friend, Stephen Roach, Asia chairman of Morgan Stanley, disappointed me at the economic outlook session this morning. I expected him to be even more bearish than usual.It says something about the change in global mood that his forecast – a global recession this year followed by 2.5 per cent annual growth over the subsequent three years – looks almost bullish. The reality might be even worse, alas.

I chided him and his fellow panellists for their apparent complacency about what I called a “proto-depression”. What did I mean by this?